Buyer Guide: When to Buy? Assessing your Affordability

Buying a home is probably one of the most important decisions of your life. However, in India, this decision is often taken as a result of societal pressure to be an owner rather than a tenant. Nonetheless, such financially binding decisions should not be taken in haste and under pressure. It requires detailed understanding and planning of finances, so as to avoid any economic strain later on.

 As, more often than not, buying a home involves taking a loan, there are certain factors one must consider before finalising the purchase. Thus, before one understands how to finance a home, it is essential to know how much one can afford.  

 EMI Affordability
Equated Monthly Installment or EMI is the most important factor when it comes to home loans. Buying your dream home may become a nightmarish experience if the EMI is not within your comfortable reach. EMI affordability is determined by factors such as your monthly income, the number of working years left and existing liabilities.

 Net monthly income is probably the most important yardstick for taking a home loan. Ideally, your EMI should not exceed 40-45 percent of your monthly income. You must take care that the home loan does not strain your other monthly expenses and contingency fund. Furthermore, you should be able to spend comfortably even after paying off the EMI. Never stretch beyond your means in anticipation of increased income in the future. In case your income increases in the subsequent years, you always have the option of pre-paying the loan. 

 The stage of your career at the time of taking the loan is also crucial. For instance, if you are planning to a take a home loan at an early stage in your career, you might be able to take a higher amount as compared to opting for the same at a later stage. Thus, at what stage of your career you decide to take a loan is crucial as it impacts your savings and retirement plans. Also, several banks are hesitant to sanction loans if you are nearing the fag end of your career.

Down Payment
Banks do not finance the complete cost of the house you intend to buy. Thus, once you know your EMI affordability, it becomes essential to check how much you can afford to disburse from your own pocket as down payment. Generally you need to put at least 20-25 percent of the total cost of the house as down payment as banks do not sanction 100 percent loan. Thus, you have to be very sure of your savings. 

 You must also check your home loan eligibility i.e. whether you are eligible to get the amount you are seeking. In case there is a difference in the amount you require and the amount you are eligible for, you would have to arrange for a larger down payment amount to cut down on the total cost.

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